1981 (3) TMI 35 - HC - Income Tax

Summary

Issues Involved:
1. Inclusion of speculation income in the assessee's income.
2. Inclusion of dividend and bank interest income arising from assets acquired from speculation income.
3. Adequacy of consideration for the transfer of shares to the assessee's wife.
4. Applicability of Section 64(iii) of the Income-tax Act, 1961, regarding dividend income of the assessee's wife.

Issue-wise Detailed Analysis:

1. Inclusion of Speculation Income in the Assessee's Income:
The Income Tax Officer (ITO) included the profits from speculation transactions conducted in the name of the minor daughter of the assessee in the total income of the assessee. The ITO argued that the minor daughter, being below the age of discretion, could not have conducted these transactions herself. It was confirmed that the father, the assessee, issued instructions for these transactions. The Tribunal found that the speculation income was legally and beneficially the minor's income, as the cheques were in her name, credited to her account, and utilized for her benefit. The Tribunal concluded that the income should not be included in the assessee's income as there was no evidence that the assessee enjoyed the income.

2. Inclusion of Dividend and Bank Interest Income:
The Tribunal also considered whether the income from dividends and bank interest arising from investments made from speculation income should be included in the assessee's income. The Tribunal noted that the legal and beneficial ownership of the income belonged to the minor, and the income was not enjoyed by the assessee. Therefore, the Tribunal excluded this income from the assessee's total income.

3. Adequacy of Consideration for the Transfer of Shares:
The ITO argued that the shares of Birla Gwalior Pvt. Ltd. were transferred by the assessee to his wife for inadequate consideration, and thus, the income from dividends should be included in the assessee's income under Section 64(iii) of the I.T. Act, 1961. The Tribunal, however, found that the shares were transferred at a fair market price. The Tribunal referred to the Supreme Court's decision, which stated that the value of shares should be determined based on either the yield method or the break-up method, depending on the circumstances. The Tribunal concluded that the shares were not transferred for inadequate consideration.

4. Applicability of Section 64(iii) of the Income-tax Act, 1961:
The Tribunal examined whether the provisions of Section 64(iii) of the I.T. Act, 1961, were applicable to the dividend income of the assessee's wife. The Tribunal found that the shares were transferred at a fair market price and that there were restrictions on the transfer of shares. The Tribunal concluded that the income arising from the shares could not be included in the assessee's income under Section 64(iii).

Conclusion:
The High Court affirmed the Tribunal's findings, holding that the income from speculation business and the income from dividends and interest arising from investments made from such speculation income should not be included in the assessee's income. The Court also held that the provisions of Section 64(iii) were not attracted in respect of the dividend income of the assessee's wife. The questions referred to the Court were answered in favor of the assessee, and the parties were directed to bear their own costs.